ch14 aggt.sales & op.planning
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1
Aggregate Sales and Operations Planning
2
Sales and Operations Planning
The Aggregate Operations Plan
Examples: Chase and Level strategies
OBJECTIVES
3
Master scheduling
Material requirements planning
Order schedulingWeekly workforce andcustomer scheduling
Daily workforce and customer scheduling
Process planning
Strategic capacity planning
Sales and operations (aggregate) planning
Longrange
Intermediaterange
Shortrange
ManufacturingServices
Sales plan Aggregate operations plan
Forecasting & demand management
4
Sales and Operations Planning Activities
Long-range planning– Greater than one year planning horizon– Usually performed in annual increments
Medium-range planning– Six to eighteen months – Usually with weekly, monthly or quarterly
increments
Short-range planning– One day to less than six months– Usually with weekly or daily increments
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The Aggregate Operations Plan
• Main purpose: Specify the optimal combination of
• production rate (units completed per unit of time)
• workforce level (number of workers)
• inventory on hand (inventory carried from previous period)
• Product group or broad category (Aggregation)
• This planning is done over an intermediate-range planning period of 3 to18 months
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Balancing Aggregate Demandand Aggregate Production Capacity
0
2000
4000
6000
8000
10000
Jan Feb Mar Apr May Jun
45005500
7000
10000
8000
6000
0
2000
4000
6000
8000
10000
Jan Feb Mar Apr May Jun
4500 4000
90008000
4000
6000
Suppose the figure to the right represents forecast demand in units
Suppose the figure to the right represents forecast demand in units
Now suppose this lower figure represents the aggregate capacity of the company to meet demand
Now suppose this lower figure represents the aggregate capacity of the company to meet demand
What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up
What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up
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Required Inputs to the Production Planning System
Planning for
production
External capacity
Competitors’behavior
Raw material availability
Market demand
Economic conditions
Currentphysical capacity
Current workforce
Inventory levels
Activities required for production
External to firm
Internal to firm
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Key Strategies for Meeting Demand (Production Planning Strategies)
• Chase Strategy
• Stable workforce – variable work hours
• Level Strategy
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Key Strategies for Meeting Demand (Production Planning Strategies)
• Pure Strategy – only one of the variables used to absorb demand fluctuations
• Mixed Strategy – two or more variables used in combination constitute this strategy
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Prodn Plan 1 - Exact Production / Vary workforce
Prodn Plan 2 – Constant workforce / Vary Inventory & permit stockouts
Prodn Plan 3 – Constant workforce / Subcontract
Prodn Plan 4 – Vary wrkforce/Subcont.
AGGREGATE PLANNING TECHNIQUES (cut-and-try)
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Aggregate Planning Examples: Unit Demand and Cost Data
Materials Rs5/unitHolding costs Rs1/unit per mo.Marginal cost of stockout Rs1.25/unit per mo.Hiring and training cost Rs200/workerLayoff costs Rs250/workerLabor hours required .15 hrs/unitStraight time labor cost Rs8/hourBeginning inventory 250 unitsProductive hours/worker/day 7.25Paid straight hrs/day 8
Suppose we have the following unit demand and cost information:
Suppose we have the following unit demand and cost information:
Demand/mo Jan Feb Mar Apr May Jun
4500 5500 7000 10000 8000 6000
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Jan Feb Mar Apr May JunDays/mo 22 19 21 21 22 20Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145Units/worker 1063.33 918.33 1015 1015 1063.33 966.67Rs/worker 1,408 1,216 1,344 1,344 1,408 1,280
Productive hours/worker/day 7.25Paid straight hrs/day 8
Demand/mo Jan Feb Mar Apr MayJun
4500 5500 7000 10000 80006000
Given the demand and cost information below, whatare the aggregate hours/worker/month, units/worker, and Ruppees/worker?
Given the demand and cost information below, whatare the aggregate hours/worker/month, units/worker, and Ruppees/worker?
7.25x 22
7.25/0.15=48.33 & 48.33x22=1063.3322x8hrsxRs8=Rs1
408
Cut-and-Try Example: Determining Straight Labor Costs and Output
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Chase Strategy(Hiring & Firing to meet demand)
JanDays/mo 22Hrs/worker/mo 159.5Units/worker 1,063.33Rs/worker 1,408
JanDemand 4,500Beg. inv. 250Net req. 4,250Req. workers 3.997HiredFired 3Workforce 4Ending inventory 0
Lets assume our current workforce is 7 workers.
Lets assume our current workforce is 7 workers.
First, calculate net requirements for production, or 4500-250=4250 units
Then, calculate number of workers needed to produce the net requirements, or 4250/1063.33=3.997 or 4 workers
Finally, determine the number of workers to hire/fire. In this case we only need 4 workers, we have 7, so 3 can be fired.
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Jan Feb Mar Apr May JunDays/mo 22 19 21 21 22 20Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145Units/worker 1,063 918 1,015 1,015 1,063 967Rs/worker 1,408 1,216 1,344 1,344 1,408 1,280
Jan Feb Mar Apr May JunDemand 4,500 5,500 7,000 10,000 8,000 6,000Beg. inv. 250Net req. 4,250 5,500 7,000 10,000 8,000 6,000Req. workers 3.997 5.989 6.897 9.852 7.524 6.207Hired 2 1 3Fired 3 2 1Workforce 4 6 7 10 8 7Ending inventory 0 0 0 0 0 0
Below are the complete calculations for the remaining months in the six month planning horizon
Below are the complete calculations for the remaining months in the six month planning horizon
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Jan Feb Mar Apr May JunDemand 4,500 5,500 7,000 10,000 8,000 6,000Beg. inv. 250Net req. 4,250 5,500 7,000 10,000 8,000 6,000Req. workers 3.997 5.989 6.897 9.852 7.524 6.207Hired 2 1 3Fired 3 2 1Workforce 4 6 7 10 8 7Ending inventory 0 0 0 0 0 0
Jan Feb Mar Apr May Jun CostsMaterial 21,250.00 27,500.00 35,000.00 50,000.00 40,000.00 30,000.00 203,750.00Labor 5,627.59 7,282.76 9,268.97 13,241.38 10,593.10 7,944.83 53,958.62Hiring cost 400.00 200.00 600.00 1,200.00Firing cost 750.00 500.00 250.00 1,500.00
260,408.62
Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included
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Level Workforce Strategy (Surplus and Shortage Allowed)
JanDemand 4,500Beg. inv. 250Net req. 4,250Workers 6Production 6,380Ending inventory 2,130Surplus 2,130Shortage
Lets take the same problem as before but this time use the Level Workforce strategy
Lets take the same problem as before but this time use the Level Workforce strategy
This time we will seek to use a workforce level of 6 workers
This time we will seek to use a workforce level of 6 workers
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Jan Feb Mar Apr May JunDemand 4,500 5,500 7,000 10,000 8,000 6,000Beg. inv. 250 2,130 2,140 1,230 -2,680 -1,300Net req. 4,250 3,370 4,860 8,770 10,680 7,300Workers 6 6 6 6 6 6Production 6,380 5,510 6,090 6,090 6,380 5,800Ending inventory 2,130 2,140 1,230 -2,680 -1,300 -1,500Surplus 2,130 2,140 1,230Shortage 2,680 1,300 1,500
Note, if we recalculate this sheet with 7 workers we would have a surplus
Note, if we recalculate this sheet with 7 workers we would have a surplus
Below are the complete calculations for the remaining months in the six month planning horizon
Below are the complete calculations for the remaining months in the six month planning horizon
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Jan Feb Mar Apr May Jun4,500 5,500 7,000 10,000 8,000 6,000
250 2,130 10 -910 -3,910 -1,6204,250 3,370 4,860 8,770 10,680 7,300
6 6 6 6 6 66,380 5,510 6,090 6,090 6,380 5,8002,130 2,140 1,230 -2,680 -1,300 -1,5002,130 2,140 1,230
2,680 1,300 1,500
Jan Feb Mar Apr May Jun8,448.00 7,296.00 8,064.00 8,064.00 8,448.00 7,680.00 48,000.00
31,900.00 27,550.00 30,450.00 30,450.00 31,900.00 29,000.00 181,250.002,130.00 2,140.00 1,230.00 5,500.00
3,350.00 1,625.00 1,875.00 6,850.00
241,600.00
Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included
Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included
Note, total costs under this strategy are less than Chase at Rs260.408.62
Note, total costs under this strategy are less than Chase at Rs260.408.62
LaborMaterialStorageStockout
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Question Bowl
Sales and Operations Planning activities are usually conducted during which planning time horizon?
a. Long-range b. Intermediate-rangec. Short-ranged. Really short-rangee. None of the above
Answer: b. Intermediate-range (i.e., 6 to 18 months)
20
Question BowlWhich of the following are Production Planning
Strategies can involve trade-offs among the
workforce size, work hours, inventory, and
backlogs?
a. Chase strategy
b. Stable workforce-variable work hours
c. Level strategy
d. All of the above
e. None of the above
Answer: d. All of the above
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Question Bowl
Which of the following are considered “relevant
costs” in the Aggregate Production Plan?a. Costs associated with changes in the production
rateb. Inventory holding costsc. Backordering costsd. Basic production costse. All of the above
Answer: e. All of the above
22
Question Bowl
Which of the following Aggregate Planning
Techniques can be performed using simple
spreadsheets?a. Cut-and-tryb. Linear programmingc. Transportation methodd. All of the abovee. None of the above
Answer: a. Cut-and-try (The other two involve more complex computational effort than simple spreadsheets.)
23
Question BowlWhich of the following methods can be used
to allocate the right type of capacity to the
right type of customer at the right price and
in time to maximize revenue?
a. Cut-and-try
b. Yield management
c. Transportation method
d. All of the above
e. None of the above
Answer: b. Yield management
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Question Bowl
From an operational perspective Yield
Management is most effective as a capacity
technique, then which of the following
happens?
a. Demand can not be segmented by customer
b. Variable costs are high
c. Fixed costs are low
d. Demand is highly variable
e. All of the above
Answer: d. Demand is highly variable
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